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Thursday's Energy Stocks: Coal shares gain despite Morgan Stanley's pessimism

Coal stocks regained some ground in trading on Thursday, Dec. 15, as broader markets rose as well, but the long-term outlook for the sector still remains pessimistic.

In a Dec. 15 research note, Morgan Stanley warned that the post-election bullishness regarding coal may be "overdone," saying that gains gleaned by coal via a rise in natural gas prices, making coal the more viable option, cannot be sustained past 2018.

"Our fundamental analysis of power generation economics shows that longer-term coal simply cannot compete with natural gas or renewables (even on an unsubsidized basis), regardless of any changes made to environmental regulations," Morgan Stanley said. "As a result, after a one-year increase in coal consumption in 2017 due to higher gas prices, we expect coal's structural decline to continue, and see natural gas as a relative winner."

The SNL Coal Index increased 1.69% to settle at 81.43. Arch Coal Inc. gained 1.31% to settle at $80.27. CONSOL Energy Inc. rose 1.57% to settle at $19.43, but CNX Coal Resources LP declined 0.58% to finish at $17.15 on light volume.

The broader indexes all showed growth. The Dow Jones Industrial Average rose 0.30% to settle at 19,852.24, the S&P 500 increased 0.39% to settle at 2,262.03 and SNL Energy Index shot up by 0.73% to reach 275.78.

The SNL Midstream Energy Index rose 0.93% to settle at 116.84. Midstream heavyweight Kinder Morgan Inc. increased 0.96% to settle at $21.02. Its Tennessee Gas Pipeline Co. unit on Dec. 15, won regulatory approval for a proposed $170.5 million natural gas line to the Cameron LNG export terminal, which will increase the amount of gas available to the Louisiana facility by up to 900,000 Dth/d. Meanwhile, Enterprise Products Partners LP has recovered from a June explosion and fire, resuming operations at the affected Pascagoula natural gas processing plant in Mississippi. The partnership's shares rose 2.21% to settle at $25.91 in heavy trading.

The Dow Jones Utility Index and the Philadelphia Utility Index climbed 0.65% and 0.64%, respectively. Eversource Energy increased 1.15% to settle at $53.68 a day after the utility partnered with major offshore wind developer DONG Energy to develop DONG's proposed Bay State Offshore Wind project off of Massachusetts. Eversource also acquired a stake in Bay State.

"While this venture is unlikely to replace any other current development projects for Eversource in the near-term, it certainly has the potential to be a material extension of Eversource's growth outlook, in our view," Williams Capital Group said in a Dec. 15 research report. "We reiterate our Buy investment rating and $58.00 target price on Eversource Energy on December 15, 2016 at a price of $53.07."

AES Corp. said it expects to raise its quarterly common stock dividend 9.1%, to 12 cents per share from 11 cents per share, beginning with the first quarter of 2017. However, the utility's shares slipped 1.17% to settle at $11.80 at market close. Southern Co. shares also fell, though just a bit, by 0.04% to settle at $48.46 on above-average volume. Citi Research on Dec. 15 noted weak utility growth and debt at the parent level, triggering a "sell" rating and $44 price target.

Despite aggressive investing toward its generation segment, Citi analyst Praful Mehta questioned whether the asset acquisition spree represents an attempt on the part of Southern to "buy growth" that may not be creating long-lasting value at the company.

"It's no secret that returns for renewable projects are facing pressure from increased competition, and the company's high leverage and limited tax appetite create additional hurdles to achieving reasonable equity returns," Mehta wrote.

Despite the SNL Merchant Generator Index falling, down 3.59% to 79.88, NRG Energy Inc. increased 0.80% to settle at $12.58 at market close. Calpine Corp. also showed an increase, up 1.23% to close at $11.50.

Natural gas futures ended the Thursday, Dec. 15, session 10.6 cents lower at $3.434/MMBtu despite the first triple-digit withdrawal of the season.

Market prices and index values are current as of the time of publication and are subject to change.